Case Study: Spotify's Innovation in the Music Streaming Industry

This case study examines Spotify's innovation as a music streaming service, founded by Daniel Ek and Martin Lorentzon, revolutionizing the digital music industry. It evaluates Spotify's business model, its competitive positioning against services like Pandora and Apple Music, and its impact on the ...Read More

INNOVATION CASE STUDY
SPOTIFY

Table of contents
Introduction......................................................................................................................................3
Service information.........................................................................................................................4
Evaluation of the innovation............................................................................................................5
SWOT Analysis...............................................................................................................................6
Strengths......................................................................................................................................6
Weaknesses......................................................................................................................................7
Opportunities...................................................................................................................................7
Threats.............................................................................................................................................7
Recommendation for future improvement and development..........................................................8
Conclusion.......................................................................................................................................8
References........................................................................................................................................9

Introduction
Innovation comes from many sources and can take many different forms in the due course of
time. Different innovations are responsible for creating different opportunities for society. They
create multiple sets of demands for the producers as well as the consumers. Innovation in
business refers to ideas that are commercially exploitable (Yoo, Boland, Lyytinen, & Majchrzak,
2012). A commercially successful innovation will create or add value by improving existing
commodities, services and processes or of developing a new product, service or process that
create value of no pre existence.
Founded by swedish innovators Daniel Ek and Martin Lorentzon Spotify is a music streaming
service that was officially launched in october 2008 all across Europe. It derives its concept from
the peer to peer file sharing service and revolutionised the digital industry of Music. In this case
Study there will be a detailed discussion on the innovativeness of Spotify and how it keeps in
touch with the already established services like Pandora, Last-fm and Imeem, its current
Business model and the frequency of new innovations necessary for the company to keep
Growing (Edvardsson & Tronvoll, 2013). This Study will also deal with the challenges the
company will face from other companies and the music industry itself.
Service information
Headquartered in Stockholm, Sweden, Spotify is a freemium service that provides users with
DRM- protected content from media companies and record labels. The basic features of the
application are free with limitations and advertisement while features like improved quality of
streaming and downloading content are offered to paid subscribers. The service is available in
most of Europe, the Americas, Australia, South Africa, New Zealand and parts of Asia. Most
modern devices like windows, linux, macOS, iOS, android and windows smartphones support
Spotify.music can be searched and browsed for on the basis of parameters like Artists, albums,
genres, record labels and Playlists (Björkdahl, & Holmén, 2013). Users have the options of
creating new playlists, edit them and share them on different social media platforms like
Facebook and Twitter. The service provides its users with access over 35 million songs.
With the arrival of the first wave of music streaming services the revenues of the global music
industry declined by 40% from 23.8 billion dollars in 1999 to 14.3 billion dollars in 2014. They
facilitated illegal Digital distribution and piracy. The streaming model can be considered as an
essential driver of the inflection point of the music industry. The industry reached its highest

annual growth rate in 20 years in 2016 (Rayna & Striukova, 2016). The revenue of spotify
represents 30% and 42 % of the market of global music and the market of streaming
respectively.
The adoption of services like music streaming in the mainstream market aligns itself perfectly
with several other technological trends of the consumer. Online streaming services mostly
provide on demand access to their data without the need for downloading. User data is leveraged
by the company to better understand the users needs and thus recommending personalized
content which in turn increases servis and user engagement (Sedera, Lokuge, grover,, Sarker, &
Sarker, 2016). These streag services also unbundle different albums so that the songs can be
repackaged into personalized playlists. The introduction of Spotify created a disruptive consumer
musc product. The company currently has 83 million paying customers and 180 free users
spanning across 65 markets. The company has transformed the music listening experience for a
consumer by offering an unprecedented amount of convenience data driven personalization and
accessibility to engagement and drive discovery (Fenema, & Keers, 2018). The service filed for a
direct listing at the New York stock exchange on February 2018 and their shares started trading
on April 2018.
Evaluation of the innovation
The business model of spotify has successfully served its its purpose till date but being in ultra
competitive market of music streaming service constant innovation is the key to holding its
position in the market. The business model will require restructuring at a drastic frequency to
maintain elevated standards of its industry. The business model that is already in place needs to
be reviewed on a regular basis with new innovations coming into the light every single day.
Companies either need to mbrace these revolutions and merge products accordingly or introduce
some of their own. Spotify is a perfect example for this concept (Jahanmir, & Cavadas, 2018).
The concept of sharing files and streaming music has been around since the last two decades
with piracy sites like PirateBay, Limewire and Napster.
Distribution of music has changed dramatically since the revolution and innovation of digital
music. And this change is being driven to new heights by spotify as they offer their users with he
freedom of listening to unlimited music at anytime and providing a rate that is very competitive
to its rivals. The music streaming distribution model was broken for a large period of time and
spotify bridged this gap between artist and fans and reduced piracy at the same time. Though

Spotify is at the peak of its success its present product value is bound to expire as every product
does have a fixed cycle of life. It has to innovate effectively and with regularity to ensure that it
stands the test of time.
Today Spotify accounts for 40%of the global streaming subscriber base with 137 million users. It
primary competition are technology incumbent giants like Apple, Amazon and google who are
looking for supplements for their services. They also compete with ventures who are more
focused musically like soundcloud, pandora and Tidal. Their success in bot free and the payed
market has ensured that they dominate in both the fields. It has grown from 39% in total revenue
and 38% in premium revenue in the year 2017 thus resulting in 45% 2 year CAGR for total
revenue growth. The primary source of monetization for Spotify is their premium users who can
account for an estimated 90% of their revenue.Remaining 10% generates from ad support.
In the december of 2013 spotify Launched Spotify for artists and explained the workings of its
business model and date on revenue. The content on spotify is gained from large record labels
and Independent artists and the company pays the royalties to the copyright holders for the music
that is streamed. 70%of its total revenue is paid to the copyright holders. It also states that they
do not have any fixed per-play rate, but instead they consider factors like the home country of the
user and the royalty rate of each artist (Hänninen, Smedlund, & Mitronen, 2018). Such holder of
rights were paid around .006 dollars to .0084 dollars per play.
Spotify encourages listeners to pay for their music as the subd=scriptions are their main revenue
source. Once subscribed spotify removes ads and other limitations and increases the bit rate of
the songs to 320kbps. Unlike buying CDs streaming does not consist of a on time payment but
thousands of streams happen every day thus quickly multiplying the revenues that are being
offered and making it a long-term source for artist income.
SWOT Analysis
Strengths
● Spotify has harnessed the full applications of social media platforms and increased
distribution and effects of drive network.
● It has diluted existing models for new and innovative ones that are more aligned with the
needs of the consumer
● It has introduced new paradigms while facing great challenges and uncertainties in large
markets.

● The growth oriented nature of the application is directly related to the nature of the
consumer of the basis that the user id is accustomed to the fact that the users of the
application dwell on the hours of midnight and the personalities who are greatly depend
on personalities who may as well guide new innovative companies to success.
● The growth oriented feature of spotify which may be defined as the creatures that define
successful attributes like the aggressive attribution of preferred artists but users on
platforms like facebook will be rapidly categorised and the overall market value of each
product will be increased or decreased according to the market price of the product of
value that is being provided to the user will be and in correct measures be accounted and
thu ata sensiti will be taken into account to create a better amount data oriented accounts
that will provide a depth oriented feature of spotify that takes into account, the data that
will be used by the users creating playlists over a bundle of songs foreplayed in
continuation.
Weaknesses
● Since the launch of this application in 2008 there has been primary point of criticism for
this service. centres around artists around the consumers will behave in an unsustainable
manner because for them the sustainability of heir establishment is primary whereas for
the clientele. the use of random memsed income deberitdistrubers in different forms
payment may ultimately result in a more platform based income.ba
● Spotify on a basis daily usage terms by users have been derived as many significant
criticising authorities that Artists, composers and copyright holds a certain amount of
market share and thus if the composition is private and does not will to have a
distribution of their they can limit the music usage and the copyright protection will be
withheld.
● Though it has put a legible withstand to the illegal usage of copyright music still, we find
the are illegal distribution of music and thus it need to be cured by distributing music on a
day to day basis by a peer to peer networking system.
Opportunities
● Facilitating piracy and illegal distribution of copyrighted music application of the first
wave of music redistribution destroyed the revenues of the global music market by
figures that well economically dramatic.

● From the year 2011 to 2017 the category of music streaming service became primary
instead of being a secondary form of service because of spotify’s primary form pf
streaming service.
Threats
● Spotify has faced a number of issues regarding the service it provides. Most of which has
come for different consumers who have different innovations and have financial and
market discount which had not been fulfilled as of uncertain free with what our eyes have
provided in multiple .sessions
● Multiple Critiques which were quite harsh have been provided by different artists for the
scheme of payment by Spotify as there had been some individual agreements.
Recommendation for future improvement and development
In an existing new market for music services that will provide option to already existing notions
the user base for Spotify needs to grow substantially with the merging of new innovations.
Spotify took this innovation of p2p file sharing, streaming, online purchasing and formed a
package that was simple yet effective. It provided the user with a platform for interaction with
their preferred choice of music freely but not actually owning it. Spotify operates on a freemium
model of business thus enabling ts services to reach out to a huge amount of customers, as its
value increases gradually over a certain period of time. Revenues grew a whopping 45% from
the year 2009 to 2010 (Tumbas, Berente, & Brocke, 2018). It proved that the freemium model of
business played a huge part in making spotify achieve such a massive growth over a short period
of time. Though there are some revenue loses as spotify needs to pay a huge amount to record
labels in royalties thus enabling them to stream music for users. The loss in revenue grew from
16 million dollars to 26.5 million dollars by 2010.
The platform for interaction between the artists and the users needs to be improved sos as to
become more friendly and user interactively friendly bArs and paid subscribers (Johansson &
Kullström, 2018). Between the freemium and subscribed users the service needs to differentiate
and provide an equal amount of benefits so as to ensure that both the paid and unpaid versions
remain relevant in the mind of the user

Conclusion
In an ever streaming service changing environment of the economic internet, a streaming service
for music called Spotify has stood out as an innovator and has quickly risen to lead an industry n
the streaming of music. This was based on largely user profiled business model that gave a huge
value to preferences to music and its monetary value. We find ourselves in an economy were the
rise of companies are rapid and are quite largely dependent on user experience. And thus we can
conclude that the model of business used by spotify certainly merges with new ideas that meets
the ever changing needs of the audience.

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